Rise in U.S. Treasury Yields Driven by Real Interest Rates and AI Investment Competition

The rise in U.S. Treasury yields to levels not seen in decades is attributed to strong economic growth and competition for capital, which outweigh concerns about inflation. Fiscal easing, favorable financial conditions, and large-scale AI investments are pushing real interest rates higher. According to Bloomberg, Citadel Securities' Noshad Shah stated in a client report that nearly all of last month's increase in the U.S. 10-year Treasury yield was due to rising real interest rates, while inflation expectations remain stable. Shah explained that the market is reassessing the strength and sustainability of U.S. economic growth, with investors demanding higher returns even after accounting for inflation. High real interest rates could also pose a burden on AI investments, with about one-third of this year's hyperscaler capital expenditures expected to be financed through debt. As interest rates rise, the cost of capital may increase, making cash generation capabilities even more critical. Shah noted that while the AI boom can justify higher real capital costs, it cannot render those costs meaningless.

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